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“We are a real challenger”

A pioneer of 5G in Europe, Sunrise is putting pressure on Swisscom.
In a bold move, the second-largest operator in Switzerland announced the acquisition of UPC in February. CEO Olaf Swantee reveals the battle plan.

With significant increases in profits and steady growth in the number of subscribers, Sunrise seems to be doing quite well, despite sluggish revenue in the first quarter. The Zurich-based company, which is preparing to acquire cable operator UPC is on the offensive on several fronts. Its current challenge is to make 5G a true alternative to fibre-optic in those regions where cable networks haven’t been installed. Olaf Swantee, the group’s amiable and energetic CEO, sat down with us for an interview on this and many other topics, all the while having a dig at its number one enemy, Swisscom. We met Swantee at Sunrise’s Vaud premises.

People in Switzerland are hesitant to move to 5G because they don’t see the advantages. What will this network really do for them?

Nearly one million households in Switzerland don’t have access to a fibre connection. Contrary to what you suggest, many people are actually interested in a “fibre over the air” service. Our strategy is to offer 5G to these people who live in places where internet services aren’t very fast as a priority. The first customer that we set up in Switzerland is a perfect example of this. It was someone in the Aarau region whose only option was ADSL, which is much slower. This application of 5G does not have the same importance in cities like Geneva, Zurich, Basel or Bern, where fibre is easily available. Of course, this does not prevent us from also deploying 5G for mobile applications. We intend to offer coverage in all regions of Switzerland by the end of 2019.

So you’re saying that fibre is still the best option for very high-speed internet.

Correct, 5G will not replace fibre. But currently, only 30% of all households in Switzerland are equipped with FTTH fibre-optic connections (ed. note: the fastest fibre). So 5G is a real opportunity for anyone who doesn’t have access – both individual households and companies.

Isn’t it more of an opportunity for operators to ease the 4G network, which is becoming saturated?

The data flow over our network doubles every 16 months. It’s a significant challenge to absorb that growth. 5G will give us more capacity to handle the data flow increases. But that said, consumers will also benefit. Think about 4K TV or even HD TV: with 5G, it’s immediate and truly amazing.

In addition to fast download speeds, the other main advantage of 5G is the reduced latency – the fast response time. It’s an advantage for applications that require large upload volumes and simultaneous downloads, such as video games and virtual reality. Consumers will really see the difference between 4G and 5G.

According to the first tests conducted by bloggers, it’s not as fast as promised...

Have a little patience – we’re only just beginning to deploy the network. We’re currently reaching speeds of around 800 Mbits per second, which is at least 6 times faster than 4G. And we’ll soon see speeds of one or two Gbit/s. The latency time is currently around 11 ms – three times faster than with 4G. And the benefits are already there for TV, video game and virtual reality applications. I recently spoke with a tour operator who wanted to show hotels to clients using virtual reality. 5G will make that possible without having to use bulky equipment.

How is your business offering shaping up?

It’s one of our expanding markets. And what’s interesting is that a large part of our growth comes from contracts with large companies such as Nestlé, Procter & Gamble or Zurich. When I joined Sunrise three years ago, I thought that SMEs would be our target customers.

Specifically in the field of 5G, what services are you planning to offer these companies?

As I mentioned earlier, the most common commercial prospect for 5G will be a branch of a company in a location where high-speed internet is lacking. That’s the case for La Poste, for example, to whom we provide internet services. Some of its subsidiaries don’t have highpower infrastructure. 5G will allow us to provide them with high-speed internet.

“Some of our clients had never once changed providers before”

5G advocates talk about industrial applications, such as connected machines or telemedicine, which are more exciting possibilities.

Yes, the Internet of Things, or establishing connections with and between machines, is the most talked-about application. But that won’t happen overnight, because it requires perfect coverage. For example, connected vehicles will need 100% of the road network covered. And it will take time to get there.

But that doesn’t stop our competitor from promoting IoT. We’re more reserved and pragmatic. But we’re still discussing the possibilities of these technologies with several companies, such as Zurich airport, for example. They are interested in being able to use connected machines to optimise their productivity and lower their energy consumption.

The other area of focus for longterm development is establishing private networks for big companies. For example, a group such as UBS might need a faster network with a very quick response time in order to handle financial transactions. But again, we’ll have to wait.

Are you implying that Swisscom is selling a dream?

I’m not saying that our main competitor is only selling marketing, but when I see a sign promoting the availability of 5G in Zurich, despite the fact that network coverage is less than 80%, I can tell you that’s not our approach. We’re not selling something that we can’t provide. Our clients like working with us because we’re authentic. It’s important to make it clear to them what we can do.

Attitudes are changing. Some of our clients had never once changed providers before. And three or four months after signing with us, when I ask if we can use their name in our marketing, they say yes. We’ve also built excellent relationships with many well-known companies such as Swiss, Rivella, Tamedia, Geneva airport and Zurich airport.

With the acquisition of UPC, the prospect of a Swisscom-Sunrise duopoly is on the horizon. What’s stopping the two largest players from reaching an understanding on prices?

The main reason is that even after the merger, we will remain a real challenger. We’ll only have a 14% market share in B2B, a 30% share in the internet sector (compared to 53% for Swisscom), and a 26% share in the mobile sector (58% for Swisscom). So we need to challenge them. Our teams want to win customers. We’re aware that we are the challenger. We have to prove that we can do better than the competition. The second reason is that we will continue to offer a progressive dividend to convince investors. And to provide this dividend in the long term, Sunrise needs to grow. What’s more, I clearly announced that we were going to lower our prices.

Freenet – your main shareholder, with a 24.5% stake – is against the UPC acquisition. Is that a sign of an improvised merger that investors don’t support?

Freenet did not oppose the acquisition, but said that they did not have the financial means to participate in the capital increase. We were surprised by this comment, which implied that more discussions on a deal were needed. But the Freenet management was an integral part of negotiations over 18 months. We signed a contract. So appearing to call it into question isn’t ideal. In any event, we’ve met with more than 170 investors in Switzerland and abroad, and our project has been extremely well received.

Even though Sunrise shares have fallen in recent months...

The decreased share price is partly due to technical reasons. Firstly, we paid a dividend of 4.20 Swiss francs per share in April. Furthermore, new investors are very interested in purchasing shares but it’s normal for them to wait for the Competition Commission to sign off on the merger this autumn. Also, some investment funds, which are designed for a smaller company, are being forced to withdraw.

What could convince private investors to bet on Sunrise?

On the one hand, the merger of Sunrise and UPC Switzerland will be beneficial for growth, innovation and efficiency. On the other hand, the progressive dividend seems to be an attractive offer, especially in a country where this dividend is not taxed. Currently, the dividend yield is around 6%. Companies that have results as excellent as ours with such a dividend are rare. With the acquisition of UPC, we’re doubling our cash generation, so our capacity to return impressive dividends remains high.

What security guarantee does your Chinese supplier Huawei provide, given that the US has accused it of espionage?

It’s all political drama, not based on fact. The US is punishing Huawei to put pressure on China. But federal authorities have investigated and haven’t found anything to criticise Huawei about. Germany and the UK reached the same conclusion. What’s more, network security is our responsibility and private data isn’t put in Huawei’s hands. To guarantee the security of our installations, we run tests and audits and we have software tools that are constantly being updated and that perform checks to ensure the network is working correctly. And legally, we’re protected by the contracts that we’ve signed.

“We’re not the first nor the only company to work with Huawei”

Another very reassuring fact is that we’re not the first nor the only company to work with Huawei – in fact, 167 operators around the world currently work with them. It has an approximately 30% market share globally. Do you really think that Huawei would put that business in danger? They’re actually quite careful as a company.

What kind of relationship do you have with Huawei?

Huawei’s 5G technology is really cutting-edge. That wasn’t the case for 2G and 3G, but with 4G and 5G it’s dominating the market. Over the years, we have built an excellent partnership. When we have a problem, such as a network outage, Huawei is very reliable and responsive.

5G is currently experiencing a wave of rejection in Switzerland due to its supposed adverse effect on health. Does that concern you?

It’s not a rational debate, but I’m not surprised. We received the same wave of criticism when we launched 3G. The big difference is that now, the criticism is accompanied by fake news spread via social media, which has become much more powerful. For example, people have written that birds were falling from the sky in the Netherlands in October 2018 because of 5G. But that’s absolutely false. There weren’t even any 5G tests being conducted there at the time! According to an article in the New York Times dated 15 May 2019, many of these rumours were put about by Moscow because Russia was falling behind in the industry and was looking to slow down other countries. I don’t know if that’s true, but I’m still very surprised by the sheer amount of fake news that’s pretty much everywhere.

You threatened to sue if there was a moratorium on 5G in Swiss cantons. Aren’t you afraid that Sunrise’s reputation will suffer as a result?

We’re not at that point. But it’s still very surprising that some politicians are selling us frequencies for a total of 389 million francs and that others want to keep us from deploying this technology.

However, the authorisation procedures are the same as for existing masts and the equipment complies with the standards. So, if there is a moratorium on 5G, it’s only logical to apply it to 4G and 3G and 2G. Also, the frequencies in question are well-known and are comparable to WiFi frequencies. We’re not using higher frequencies like in the US, for example.

But still, isn’t there something unspoken about the future of 5G, in that we’ll inevitably see higher frequencies to reach the full power that has been promised?

No. We don’t need these high frequencies and I said that to the ComCom. We’re not in New York or Hong Kong where you need that kind of capacity because of the millions of people living in those cities.

What I can guarantee is that we’re compliant with the current regulations and our technology is similar to that of 4G. It’s an astonishing controversy. Actually, we should be proud to be the first country in Europe to adopt 5G.

Olaf SwanteeCEO of Sunrise

SWISS-DUTCH RULE

With his passionate vision and a voluble, even explosive way of speaking, Olaf Swantee has been making his mark on Sunrise since May 2016, when he became the CEO of the Swiss operator. After beginning his career in computing at Compaq and Hewlett-Packard, the Dutchman, now 53, joined Orange-France Telecom as executive vice president. He was then named CEO of UK telecoms operator EE and grew the company to be a world leader. Married to a Swedish woman and father of three children born in Switzerland, Dutch-born Swantee is a Swiss citizen with a Swiss passport. He holds a degree in economics from the University of Amsterdam and an MBA from the European School of Management (ESCP) in Paris.